What do you need to know as a beginner in Forex trading?
Are you a beginner in Forex trading? If so, you're probably wondering where to start. It might look like there’s a lot to know, but you can learn the basics without too much stress. Here is a beginner’s guide to some of the things a beginner in Forex trading needs to know.
This is not a get-rich-quick scheme
This is the first thing you absolutely need to know. Forex trading involves careful investing and a lot of patience. If you're expecting to hit the jackpot from the start, you're in the wrong game.
The retail trading foodchain
You need to know how the industry is mapped out. It is a combination of all participants that creates the market, but their weight is measured by how much money is managed by a particular party.
Long-term deals are safer
One unrealistic expectation that every new trader needs to avoid is that s/he will profit from the start. When you're a beginner, your objective should be minimising risks and preserving your capital. Long-term trades will be safer for you, as you can maintain a relative balance until you know enough to make money.
Avoid paying for software
Some of the best Forex trading software is available for free, with charges instead coming from a fraction of what you trade. You may have heard of Forex robots or Expert Advisors (EA), but even though they can be helpful, they have a hard time keeping up with changing markets.
Long-term trading requires patience
When you start trading in Forex, you're excited about the possibilities, but you must remember that Forex works because it’s an investment, not a lottery. You may need to hold orders open for weeks, months, or years, so learn patience and think in terms of the bigger picture.
Learn technical and fundamental analysis
Not long ago, this rule wouldn't have to have been stated. Analysis is absolutely vital to trading. Unfortunately, Forex is being increasingly sold as an effortless get-rich-quick scheme. That is not the case. You need to learn how to interpret charts, trend-lines, indicators, etc. When you make the effort, you'll find it’s not a lot to learn, but you will need to know it.
Keep it simple
Remember that you're a beginner, and don’t put too high expectations on yourself. If you overload your charts with indicators and your strategy with handles and switches, you'll get lost in the complexities, and probably drop out early on.
Pay attention to instrument portfolios, execution models, and the leverage offered...
Instead of the minimum deposits and tight spreads that are advertised with trading accounts. There is no perfect trading platform, but be cautious of Dealing Desk accounts unless you are specifically interested in the conditions they offer.
Be careful on volatile markets
Although volatility is the bread and butter of Forex trading, it is also where most money is lost.
Stick to the trends
Maybe you have the right idea about the value of the US dollar. That doesn’t mean it’s going to be traded that way. Stick to the trends, even if you think the trends are wrong.
There are hundreds of markets available
Not just the major currency pairs you may know about. Do some investigating into what else there is on offer.
Keep a journal
A trading journal is an absolute must. When you are entering into Forex for the first time, your goal is to learn as much as possible. You can only do this by keeping track of your thinking, actions, and mistakes.
Psychology is one of the most important factors in Forex trading. You'll be tempted to treat the market like a slot machine at times and just go for broke. Learn how to manage those urges, and you can stay in it for the long term.
Only use risk capital
You must never use money to trade that you can’t afford to lose. By doing so, you are setting yourself up for failure, as you will panic and make mistakes when things start going wrong. Forex should not be a gamble.
This is only the start of your Forex education. There is plenty more to learn out there and, most importantly, along the way.